Probate Avoidance Revisited

I've mentioned before - harped may be more like it - about doing your best to keep your family from having to endure the delay (more than 6 months), expense ($$$) and extra work (forms, forms, forms) of putting your estate through the probate administration process. Just to recap quickly, with a few exceptions any asset just in your own name when you die has to take that route to get to your beneficiaries, So do your best not to let that happen.

How, you ask? First, make a list of all your stuff: real estate, bank accounts, investments, retirement accounts, life insurance, vehicles, fridge magnets. Then, check to see how everything's currently owned or payable upon your eventual departure. If it's jointly-owned, say, with your spouse or a child, it's going to pass, without probate, to that co-owner as long as they last longer than you do. Same, too, if it's got a named beneficiary. And finally, if it's either payable to or titled in the name of a revocable trust, it will be skirting probate, and your family will be eternally grateful.

I'm going to assume you already know most of this. The problem is that you actually need to do the follow through. I can't tell you how often someone we've reminded about this subject over and over again still hasn't finished the project until after it's too late. That is, there's just a little checking account used to buy groceries or pay the light bills that's still in one lone name, or the life insurance is still payable to a spouse who's already passed on, or the house was jointly-owned with that spouse and now it's just in the survivor's name. Probate, probate, and more probate is all I can say.

Most planners these days recommend revocable trusts to their clients as the best anti-probate alternative, I've given that lecture myself before, so I won't repeat myself. What I will do, though, is make available my how-to memo about getting it all done. If you'd like a copy, please contact us for one free of charge.

Nearly every family has a horror story about "probating" a relative's estate, the usual complaints being about how long it took, how much it cost, and how confusing and complicated the process seemed. Not surprisingly then, avoiding probate is often the first thing out of people's mouths when they start doing their own planning. But what does that really mean, how is it accomplished, and is it really worth the effort?

First of all, "probate" refers to the process of getting the title to a decedent's assets out of his or her name and into the names of the person's beneficiaries. If a person dies, with or without a will but owning a residence, bank accounts, securities, even vehicles or other personal property in his or her own name, those assets must go through probate administration in the county court where the person was living at the time of death. Even at its simplest, the process requires filing a lot of paperwork with the court and getting the court's approval for nearly everything the executor does. It generally takes at least 8-10 months from beginning to end, and because most people need legal help navigating it, the process can easily cost $5,000 or more.

So, what's the alternative? One that many people choose is setting up a "revocable living trust". It's called "revocable" because they can change or get rid of it whenever they wish, and it's called "living" because they set it up while they're still alive. They often name themselves the trustee - the person in charge of everything the trust owns - so there are no professional fees unless they need help investing the trust assets. Then, they re-title all their assets in the name of the trust while they're alive, so there are no assets remaining in their own names when they die - thus no assets that need to go through court-supervised probate administration.

Even if probate avoidance isn't a primary objective, revocable trusts serve other important purposes, as well. They can help provide necessary funds for young children until the children are old enough to receive outright distributions of assets. Without a trust a beneficiary child would receive everything at 18, which might be a little early for someone not yet out of high school. Similar provision can also be made for elderly parents or other family members with special needs who might not be appropriate recipients for large outright distributions. Trusts can also protect the privacy of a decedent's affairs, as they are not required to be filed in a public probate office. All wills must be filed there and are available for public inspection.

Finally, although there are few estates subject to federal estate taxes these days, trusts can be used to make sure no avoidable taxes are paid unnecessarily.

While these general comments may be helpful as an introduction to the subject, the only way to determine whether a trust can accomplish one or more of the desired purposes in a particular situation is to review those circumstances with a competent professional planner.